Friday, October 31, 2008

Ignoring the Social Security Crisis

The following CNN article points to something that's been referred to in the past as "generational warfare" occurring over the issue of the health and continued existence of the social security program. According to the Senior Editor of Fortune magazine, Allan Sloan, it isn't too far off from the present that the entire fiction of the social security trust fund will begin to unravel. As Sloan puts it, the social security trust fund will have such a negative cash flow that individuals under 40 won't stand for it.

However, when you have fewer workers supporting more retirees (as we have now) and you also have a trust fund that is full of IOUs (treasury bonds), then the only way to continue the payment of benefits is to...raise taxes dramatically on those who make the benefit payout system work. And that means dramatically raising the taxes of young workers. I should add, young workers who are currently getting hammered by a bad economy that faces a very uncertain future in light of monstrous federal debt, staggering trade deficits and a questionable ability to perform against other nations (a recent study shows that one in four teenagers in the U.S. drops out of high school).

Does anyone really think that people under 40--who are trying to pay mortgages and raise families--will stand to have their taxes doubled? I don't think so. They won't have a choice, you say? Of course, they will. It's called "voting". And that's when everything changes.

When does the whole ball of yarn unravel? According to Sloan, not some comfortable faroff date like 2039, but, rather, as soon as ten years from now.